Malallis & Malallis
[2022] FedCFamC1F 619
Federal Circuit and Family Court of Australia
(DIVISION 1)
Malallis & Malallis [2022] FedCFamC1F 619
File number(s): DGC 2090 of 2020 Judgment of: MCNAB J Date of judgment: 25 August 2022 Catchwords: FAMILY LAW – PROPERTY – Application in a Proceeding – Application for joinder – Entitlement under a Discretionary trust – de facto ownership and control – no sufficient identification of the jurisdictional basis for joinder – leave granted to file a further amended application and statement of claim Legislation: Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) r 3.01, 3.03, 5.05
Family Law Act 1975 (Cth) s 90AA, 90AC, 90AE
Cases cited: AC and Ors & VC and Anor [2013] FamCAFC 60
B Pty Ltd v K [2008] FamCAFC 113
Division: Division 1 First Instance Date of hearing: 11 August 2022 Place: Melbourne Number of paragraphs: 34 Counsel for the Applicant Ms S Fisken Solicitor for the Applicant Lander and Rogers Counsel for the Respondent Mr L Wraith Solicitor for the Applicant Mr Malallis Counsel for the Proposed Third Respondents Ms L Frederico ORDERS
DGC 2090 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS MALALLIS
ApplicantAND: MR MALALLIS
Respondent
order made by:
MCNAB J
DATE OF ORDER:
25 AUGUST 2022
THE COURT ORDERS THAT:
1.The applicant have leave to file and serve a further amended application together with a proposed statement of claim, and any further supporting affidavit by 8 September 2022.
2.The respondent and proposed respondents file a response and any supporting affidavits by 22 September 2022.
3.The application be listed for hearing on 6 October 2022 at 10.00am.
4.The costs of and incidental to this application be reserved.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Malallis & Malallis has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
McNab J:
The applicant wife seeks leave through her Application in a Proceeding (“the application”) filed 10 June 2022 to join to the proceeding pursuant to r 3.01 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (“the Rules”) the following individuals and entities (“the proposed third parties”):
(1)Ms B, the husband’s mother;
(2)D Pty Ltd ACN…;
(3)C Pty Ltd ACN… (the trustee of the Malallis family trust);
(4)E Pty Ltd ACN…; and
(5)F Pty Ltd ACN….
The wife also seeks inter alia that:
That within 60 days of the date of these orders, the husband and the second respondent in their capacities as directors of [C Pty Ltd], the trustee of the [Malallis Family Trust], cause a capital distribution to be made to the wife of an amount to be particularised.
Procedural Background to the application
The wife commenced proceedings on 25 June 2020. On 11 August 2020, orders were made for an interim property settlement by consent. On 6 May 2022 at a mention to set this matter down for final hearing (which to be conducted commencing 24 October 2022), orders were made granting the wife leave to file an application for joinder of third parties, with the application to be filed on or before 27 May 2022. The application was filed 10 June 2022.
I pause here to note that the wife has objected to the court having regard to the submissions filed on behalf of the husband and the proposed third parties on the basis that pursuant to r 5.05 of the Rules:
(1) A respondent to an Application in a Proceeding who seeks to oppose the application, or seeks different orders, must file and serve a Response to an Application in a Proceeding.
(2) A respondent who files and serves a Response to an Application in a Proceeding must, at the same time, file and serve an affidavit stating the facts relied on in support of the Response.
Note: A Response to an Application in a Proceeding must be filed and served within 28 days after service of the application to which it relates (see subrule 2.18(2)).
In circumstances where the applicant was late filing her application, I have proceeded to deal with the matter on the basis that the submissions filed by the husband and the proposed third parties are, in effect, their responses. Those submissions seek orders for the court to strike out or dismiss the application on the basis that there is no proper statement of any jurisdictional foundation for the claims against the proposed third parties.
These proceedings relate to final property orders sought by the wife, including such property as the wife contends the husband has a de facto control over and a 50% interest in, being the assets held and controlled by the proposed third parties referred to in her application and set out above. She seeks these parties be joined as joinder is necessary to affect the orders she seeks on a final basis.
This matter is listed for final hearing on 24 October 2022 for five days.
The Wife’s Evidence
The applicant relies on an affidavit in support of her application affirmed 10 June 2022, together with written submissions which contained annexures, which were filed on the date of the hearing of the application.
The wife sets out by way of background that she is 45 years of age and the primary carer of the two children of the marriage, X aged 12 and Y age 9. She is a homemaker and she works on a casual basis in retail. The husband is 47 years of age and is the executive director of G Group. The mother deposes that G Company was a business set up by the husband's parents Mr H and Ms B. The wife deposes that the husband has worked at G Company for his entire adult career. He is responsible for the day-to-day operations of the business, long-term marketing, business strategy, new product development and all other aspects in the management of the business.
After his father died, the husband stepped into the role of Executive Director and it is asserted that he continues in this role. He is the only child of Mr H and Ms B.
The business comprising G Company was valued as at 25 January 2022 by a single valuer at $52,007,000. The wife states that each of the companies sought to be joined form part of the corporate structure which owns the assets of the business, G Company. Further, she said that E Pty Ltd and the E Trust hold adjacent properties in Suburb J in Victoria, with the husband and Ms B being the joint directors and equal shareholders of E Pty Ltd, which is a trustee of the E Trust. The husband and the paternal grandmother are listed as joint proprietors on the title of the properties. One of the properties was purchased by the husband and his parents in 2010, and the other purchased in 2016. The wife asserts that one of the properties was used as a holiday house for the whole family prior to the separation. She asserts that this asset had no business use and was not an income generating investment.
The wife also refers to the husband's father's will, which was dated late 2012 (the paternal grandfather having passed away in late 2012). Paragraph 5.1 of the will provides “I nominate and appoint such of [Ms B and Mr Malallis] who survive me to replace me in any controlling position in my trusts.” In that document “My Trust” is defined as the "[Malallis Family Trust, the F Trust, E Trust] and any other trust in which I have a controlling position.”
By her affidavit at [12] – [19] she says that both she and the husband received distributions from the Malallis Family Trust which are shown in the financial accounts, but she is not sure whether those distributions have actually been paid out. She states that in the financial year ending 30 June 2018, a distribution was declared in the tax return of the trust to her of $695,683 and to the husband of $695,682. The wife also refers to a distribution declared in the tax return of the trust for the year ending 30 June 2017 of $156,967 to her and $937,618 to K Pty Ltd, a company wholly owned by the husband and of which he is the sole director. She also refers to a distribution declared in the tax return of the trust to the husband of $453,250 for the year ending 30 June 2016. The wife deposes that she does not know to what use those funds were put or whether there were further distributions in the previous years, as she says that those financial documents relating to any earlier payments have not been disclosed to her.
Otherwise, the wife refers to the income that the husband enjoyed during their relationship. She says that during the relationship should she received gross monthly payment of $4,000, which was used to pay for groceries and day-to-day expenses relating herself and the children. She also states that the husband has represented in these proceedings that he receives after-tax income of $71,676.90. This is notwithstanding that are the wife states at [26]:
our expenses have consistently exceeded [Mr Malallis’s] declared salary including mortgage payments of $14,000 per at month for the [Suburb L] property which we owned between 2017 and 2019, private school tuition fees for both children at about $3500 per month, living expenses and at least one annual holiday which was usually overseas for at least a month. Since our marriage all cars that either the husband or I have driven have been leased through the company. The company has also historically paid for our mobile telephones, Foxtel, Internet and gardeners. An analysis of expenses which [Mr Malallis] meets suggests annual expenses as follows:
1.a mortgage payments of about $168,000 per annum;
2.the school fees of about $42,000 per annum;
3.estimated annual living expenses of estimated $100,000; and
4.provision of mobile phones, Foxtel, Internet and gardeners of about $50,000
At [29] of her affidavit, she states the following:
In his application for refinancing the mortgage secured against the property at [M Street], [Suburb N], in documents prepared by [O Solicitors], the Husband's solicitor in these proceedings, [Mr Malallis] declared a "self-employed" income of $2,493,001. I do not know where these funds generate from. Annexed hereto and marked with the letters "[MM-2]" is the Nulend Application form dated 17 November 2020.
Notwithstanding that this affidavit was served in June 2022, the respondent husband has not responded to the matters raised by the wife’s affidavit relating to his income, expenses and his statement in a loan application that he had income of $2,493,001.
Consideration
The husband correctly submits that the issue to be resolved is whether the proposed third parties are persons whose rights may be directly affected by an issue in a proceeding, and whose participation as a party is necessary to determine all issues in dispute in the proceeding, within the meaning of r 3.01 of the Rules.
Rule 3.01 provides:
Necessary parties
A person whose rights may be directly affected by an issue in a proceeding, and whose participation as a party is necessary for the court to determine all issues in dispute in the proceeding, must be included as a party to the proceeding.
Rule 3.03 provides the procedure for adding a new party:
Adding a party
(1) A party to a proceeding may include any person as a party by:
(a) naming the person as a party in the application, response or reply; and
(b) serving on the person a copy of the application, response or reply and all other relevant documents filed in the proceeding.
(2) A party may add another party after a proceeding has started by amending the application or response to add the name of the party.
(3) A party who relies on subrule (2) must:
(a) file an affidavit setting out the facts relied on to support the addition of the new party, including a statement of the new party's relationship (if any) to the other parties; and
(b) serve on the new party:
(i) a copy of the application, amended application, response or amended response; and
(ii) the affidavit referred to in paragraph (a); and
(iii) any other relevant document filed in the proceeding; and
(c) serve on the other parties:
(i) a copy of the application, amended application, response or amended response; and
(ii) the affidavit referred to in paragraph (a).
(4) A party may only add another party after the first court date with the leave of the court.
(5) A party who relies on subrule (4) must:
(a) file:
(i) an Application in a Proceeding; and
(ii) an affidavit setting out the facts relied on to support the addition of the proposed new party, including a statement of the proposed new party's relationship (if any) to the other parties; and
(b) serve on the proposed new party:
(i) a copy of the Application in a Proceeding; and
(ii) the affidavit referred to in subparagraph (a)(ii); and
(iii) any other relevant document filed in the proceeding; and
(c) serve on the other parties:
(i) a copy of the Application in a Proceeding; and
(ii) the affidavit referred to in subparagraph (a)(ii).
Both the husband and the proposed third parties oppose leave been granted to join the proposed third parties on the basis that:
(1)The wife has not identified a jurisdictional basis for the orders sought against Ms Malallis in her capacity as a director of C Pty Ltd;
(2)The wife has not disclosed a cause of action and supporting evidence to support a cause of action such as would necessitate the joinder of those parties;
(3)The wife has failed to particularise a claim to enable the entities to respond; and
(4)Given that the proceeding is listed for trial commencing 24 October 2022, the joinder of these third parties is likely to jeopardise that hearing date, and is another reason that the application should be refused.
Both the husband and the proposed third parties refer to B Pty Ltd v K [2008] FamCAFC 113 at [43] – [49]. By way of summary, what is said to arise from that authority is that:
(1)When formulating an application for joinder, it is necessary to set out the nature of the claim, and the basis of it in an ordinary way in the application;
(2)Often, it is good practice to determine the jurisdictional basis of a claim as a preliminary issue; and
(3)Sufficient facts must be asserted to demonstrate that, if proved, the law arguably provides the relief sought.
It is asserted that it is not permissible for the joinder to occur and then for a claim to be formulated at some later point either at trial or before trial. The husband submits that the wife has failed to disclose whether it is her case that the property of the Malallis Family Trust is "property” in relation to the parties of to the marriage, or either of them, for the purposes of section 79 of the Family Law Act1975, or whether her claim arises on some other basis.
In response to the submissions, the applicant states that it is plain that the claims made involving the proposed third parties which make it necessary for them to be joined are that the husband is effectively in control of those entities and the assets they hold. That control is said to arise from the fact that he is an executive director of the business, the only child of the founders of the business, and effectively a decision maker in the day-to-day running of the business. By virtue of that position, he has regularly received distributions well in excess of his income, and he and the family developed a lifestyle which is wholly dependent on an expectation of a distributions from the trust, of which he is effectively in control.
The wife also points to the fact that the husband and paternal grandmother have arranged to a further mortgage the property at R Street, thereby limiting the wife's capacity to obtain litigation funding to continue with this litigation. I was advised by counsel for the husband at the hearing on 11 August 2022 that the monies secured by the mortgage were loan monies advanced by the paternal grandmother to the husband to pay for the maintenance payments, and other monies which are the subject of orders of the court.
The application was heard on 11 August 2022 with each party, including the proposed third parties, represented by Counsel and filing written submissions.
The court was told that the asset pool excluding the assets of the proposed third parties was estimated was about $2 million in non-superannuation assets and about $1 million in superannuation assets.
In her application, the wife seeks an order that the husband and Ms B in their respective capacities as directors of C Pty Ltd (the trustee of Malallis Family Trust) cause a capital distribution to be made to the wife, in an amount to be particularised.
In my view, the wife has not set out in a sufficiently clear way the jurisdictional basis for the joinder of these proposed third parties. At present it is a collation of facts but no cause of action is raised such as to make it clear how each of the proposed third parties are said to be necessarily involved in this proceeding. I also am of the view that the general claim for relief set out in the current application does not sufficiently identify the orders that are to be made against each of the entities sought to be joined or the legislative provisions relied on to make the order.
I note the relevant provisions of Part IIIAA of the Family Law Act and in particular:
SECT 90AA
Object of this Part
The object of this Part is to allow the court, in relation to the property of a party to a marriage, to:
(a) make an order under section 79 or 114; or
(b) grant an injunction under section 114;
that is directed to, or alters the rights, liabilities or property interests of a third party.
SECT 90AC
This Part overrides other laws, trust deeds etc.
(1) This Part has effect despite anything to the contrary in any of the following (whether made before or after the commencement of this Part):
(a) any other law (whether written or unwritten) of the Commonwealth, a State or Territory;
(b) anything in a trust deed or other instrument.
(2) Without limiting subsection (1), nothing done in compliance with this Part by a third party in relation to a marriage is to be treated as resulting in a contravention of a law or instrument referred to in subsection (1).
SECT 90AE (2)
Court may make an order under section 79 binding a third party
(2) In proceedings under section 79, the court may make any other order that:
(a) directs a third party to do a thing in relation to the property of a party to the marriage; or
(b) alters the rights, liabilities or property interests of a third party in relation to the marriage.
In AC and Ors & VC and Anor [2013] FamCAFC 60 at [35] the Full Court referred to a detailed examination of “the nexus…between trust assets and the parties especially the husband” as the trusts were structured in that case:[1]
[216] As can be seen from the chronological analysis the husband has had a significant involvement in the Trust and its assets. Although the genesis of the assets were attributable to his father, the Trust and the corporate trustee has always included, at least until the spouses really started to have real marital difficulties, the husband as a substantial stakeholder. I also find that the husband has a realistic prospect of gaining control of the Trust assets in the future after the completion of these proceedings.
[217] Not only do the spouses have a property interest by virtue of the trust deed, it is also demonstrated they have had a close nexus with the Trust and its assets.
[1] AC and Ors & VC and Anor [2013] FamCAFC 60 at [20] – [30].
Plainly, orders affecting interests in trusts and claims involving third parties are not unusual or novel. I have set out the relevant provisions and an extract from AC and Ors [2013] FamCAFC 60 as it makes this point plain. The presentation of facts without more does not establish an arguable claim because the nature of the claim has not been sufficiently identified. My present concern is that the claim is not formulated with sufficient precision.
I take into account the statement of the Full Court in B Pty Ltd v K [2008] FamCAFC 113 at [43] – [49] which is extracted in the husband’s submissions regarding the efficacy of swearing a statement of claim in order to properly expose the nature of the claim.
I will make orders that the applicant have leave to file and serve an amended application for joinder, together with a draft statement of claim setting out the basis of the relief sought against the proposed third parties. The matter will be listed for a short hearing and the court will then determine whether that statement of claim discloses an arguable cause of action or arguable basis for the claim for relief set as set out in a further amended application.
I do note the submissions made by the mother, that the arrangements entered into between the father and the paternal grandmother are undermining her capacity to obtain litigation funding. I will consider any application for orders to consider this issue as soon as practicable after it is filed so that every effort can be made to preserve the trial date.
I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McNab. Associate:
Dated: 25 August 2022
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